LONDON, Feb 9 (IFR) - Deutsche Bank is shutting down its US
over-the-counter swaps clearing business, but plans to move some
of its most active US clients over to the bank’s European
operations, according to people familiar with the matter.
The clients could continue to clear their swaps through
London-based LCH SwapClear and Frankfurt’s Eurex.
The German dealer will withdraw from US OTC clearing with
immediate effect but remains committed to its listed derivatives
clearing business in the region and will remain an active
foreign exchange prime broker. The bank had no intention of
retreating from European OTC clearing, where it remains a
top-five player with more than 50 clients.
Deutsche Bank’s decision comes in response to a crippling
regulatory capital regime that has made OTC swaps clearing a
balance sheet-intensive operation for all dealers.
The rules make it particularly difficult for non-US banks
that clear their clients’ swaps through US clearinghouses, such
as CME, as US rules require foreign banks to hold capital in an
intermediate holding company.
Once considered a potential cash cow stemming from sweeping
derivatives reforms that aimed to push large parts of the
US$544trn swaps market into clearinghouses, client clearing has
become a thorn in the side for many dealers.
BNY Mellon, Nomura, RBS and State Street have all thrown in
the towel in recent years, while Credit Suisse and Barclays
outsourced some clearing activities to a third party in an
attempt to cut costs.
Regulators, including Bank of England governor Mark Carney,
have raised concerns that current capital rules, which treat
client margin held against cleared swaps as a leveraged asset on
balance sheets, are out of step with reforms to encourage more
participants to clear their derivatives trades.
Deutsche Bank’s retreat is a further reduction in its US OTC
clearing activities as part of the Strategy 2020 plan, which
aims to simplify operations and refocus resources on less
At the end of December, Deutsche Bank Securities held
US$461m of segregated customer collateral against cleared OTC
swaps, CFTC data show. That left the bank outside the top 10
providers for US swaps clearing.
The bank's US OTC client roster is understood to be
significantly smaller that its European operation, with the
majority of activity coming from a handful of players.
Citigroup, Credit Suisse, JP Morgan and Morgan Stanley lead
in US swaps clearing, with each reporting customer swap margin
of over US$10bn as of last December.
(Reporting by Helen Bartholomew)